Prudential has conducted new research that shows more than two in five pensioners (43 per cent) say they are living a 'cautious' retirement as they worry about having sufficient long-term income to get by.
However, despite concerns about making their retirement pots last, the majority of pensioners still take a tax-free lump sum from their pensions when they retire. Nearly eight out of 10 (79 per cent) of those drawing a company or private pension in 2011 took a lump sum from their fund at retirement, compared with 76 per cent three years ago.
The research, exploring the retirement reality for pensioners in 2011, also found that one in 10 (10 per cent) of those who did take a tax-free lump sum either said they now regret the decision or that they had not fully understood the long-term impact it would have on their retirement income.
For many, the option to take a lump sum at the point of retirement is the most tax-efficient way to access some of their pension fund. However, the way in which pensioners use the money from their lump sum is often shaped by concerns around long-term pension income. More than half (52 per cent) of those who had taken a lump sum put some of the money in a savings account and just over a quarter (26 per cent) invested in stocks, shares or investment trusts.
Vince Smith Hughes, Head of Business Development at Prudential, said: "Most people with a company or private pension fund choose to take a tax-free lump sum at retirement, and for many this proves to be the right thing to do. However, some pensioners are beginning to regret the way they used the tax-free cash. The days of buying a shiny new car or going on an once-in-a-lifetime holiday may be gone, to be replaced by making savings and investments with the lump sum to supplement retirement income.
"There is no one-size-fits-all answer to the financial choices that people need to make when they retire. For example, spending the money from a tax-free lump sum and taking a level annuity with the balance of your fund will effectively fix the level of your retirement income - and for some this may provide the stability they need. Others may wish to explore more flexible retirement products that take into account the effects of inflation.
"There does, of course, need to be a balance. Many people want to spend their at-retirement lump sum in a way they have looked forward to for many years. Those who are planning to retire in the near future and are uncertain about their financial choices should seek regular professional financial advice, to ensure they secure the long-term retirement income they need."
Prudential's research has previously found that of those who took a lump sum from their pension pot at retirement, a third (33 per cent) used all or part of it for home improvements, 31 per cent paid for a holiday, and two in five (19 per cent) bought a new car.
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- Retirement attitudes and pension lump sum research 2011 conducted online by Research Plus
between 24 and 28 February 2011 among 1,001 UK retired adults.
- Pension funds lump sum research 2008 conducted online by YouGov between 2 and 6 May 2008
among 4,051 UK adults, 1,003 of whom were retired.
'Prudential' is a trading name of The Prudential Assurance Company Limited, which is registered in England and Wales. This name is also used by other companies within the Prudential Group, which between them provide a range of financial products including annuities, life assurance, bond investment, a tax calculator and retirement plans, which include pension plan and pension annuity tips.
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